U.S. Supreme Court Agrees to Hear Key 401(k) Fiduciary
Breach Case

June 19, 2007 (PLANSPONSOR.com) - In a closely
watched case that could settle a key area of pension law
affecting 401(k) plans, the U.S. Supreme Court will decide
whether participants can sue to restore their account
balances when a fiduciary breach caused them to lose
money.

Monday’s decision by justices to take the case
means the high court could shape participants’ power to
remedy situations where they charge an Employee Retirement
Income Security Act (ERISA) fiduciary breach caused their
401(k) balance to fall below what it would have been
without the breach.

“It makes little sense that plans and their
participants should be left with no relief when plan
assets are lost through fiduciary mismanagement,”
U.S. Solicitor General Paul Clement responded in legal
briefs filed with the court. The Solicitor General
represents the federal government before the Supreme
Court.

The issue, according to court documents, was
whether ERISA allowed an individual to sue a plan
beneficiary for that person’s own benefit and not for
the benefit of the plan as a whole.

The case, now set for the court’s 2007-2008 term
that begins in October, centers around allegations leveled
by James LaRue that his employer did not follow his
investment instructions in 2001 and 2002 causing him
to lose approximately $150,000. LaRue sued his
employer, management-consulting firm DeWolff Boberg &
Associates, in federal court inCharleston, South Carolina,
seeking to have his account made whole.

LaRue’s long legal trek to the Supreme Court has
included two setbacks, one before U.S. District Judge David
C. Norton of the U.S. District Court for the District of
South Carolina and the other at
the 4th U.S. Circuit Court of Appeals. Norton concluded
that ERISA did not allow LaRue to sue for his own gain – a
decision
later affirmedby the appellate court (See
Court Turns Down Participant Claim for Account
Restoration
).

In its opinion, the appellate court said LaRue had
not proven unjust enrichment, unlawful possession, or
self-dealing on the part of DeWolff, BoBerg and
Associates Inc., and the remedy he was seeking fell
outside the scope of “equitable relief”
authorized by ERISA.

Circuit Judge J. Harvie Wilkinson III, who wrote
the 4
th
Circuit opinion, rejected the notion that LaRue's
requested relief - making his 401(k) account whole -
could be construed as being in the interest of the plan
as a whole.

"It is difficult to characterize the remedy
plaintiff seeks as anything other than personal,"
Wilkinson wrote. "He desires recovery to be paid
into his plan account, an instrument that exists
specifically for his benefit. The measure of that
recovery is a loss suffered by him alone. And that loss
itself allegedly arose as the result of defendants'
failure to follow plaintiff's own particular
instructions, thereby breaching a duty owed solely to
him."

Further, Wilkinson
asserted, LaRue's requested action by the courts could
not be interpreted as being equitable.

"Plaintiff does not allege that funds owed to
him are in defendants' possession, but instead that
these funds never materialized at all," Wilkinson
wrote. "He therefore gauges his recovery not by the
value of defendants' nonexistent gain, but by the value
of his own loss - a measure that is traditionally
legal, not equitable."

The case now before the Supreme Court is LaRue v.
DeWolff,Boberg & Associates, U.S., No. 06-856.